FDIC Says Insurance Fund’s Growth Unlikely to Alter Banks’ Rates

By Jesse Hamilton -
Oct 8, 2013

The Federal Deposit Insurance Corp.
said it is unlikely to change the rates banks pay for insurance
that guarantees customer deposits even as the fund continues to
stay on track to meet deadlines for its health.

The federal backstop, funded by assessments on banks, was
at $37.9 billion by June 30, up from a deficit of $20.9 billion
at the end of 2009 as bank failures surged during credit crisis.
The FDIC predicted it will spend $4 billion to cover bank
shutdowns in the next five years, a projection that declined
another $1 billion since April as the industry improves,
according to a report issued today updating the fund’s health.

“Notwithstanding this improvement, we have a long way to
go,” said FDIC Chairman Martin Gruenberg. He said rates charged
the banks probably won’t rise as industry health improves and
numbers of banks failing or at risk of doing so continues to
decline. “It is also unlikely we will be able to lower them in
the near future.”

The fund returned to a positive balance in 2011, and the
FDIC anticipates that its income from assessments on banks will
drop from about $12.4 billion in 2012 to about $10 billion this
year as conditions improve and growth in the assessment base has
been more sluggish than expected, according to the report.

The fund still has less than its required reserve ratio of
1.15 percent of the deposits it insures, and the FDIC expects to
reach that goal by 2019 -- an extension of one year from earlier
estimates because of a “more conservative projection of future
assessment revenue.” The reserve ratio was at 0.63 percent by
June 30, the agency said. The Dodd-Frank Act of 2010 required
the FDIC to increase the target ratio even higher to 1.35
percent by Sept. 30, 2020.

When the ratio nears 1.15 percent, the agency will propose
a rule required by Dodd-Frank to offset the effect on smaller
banks as the ratio target increases to 1.35 percent, according
to the report.

First National Bank of Edinburg, Texas, was the most recent
of this year’s 22 bank failures. The FDIC estimated its cost to
the fund will be $638 million.